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Rational Behavior, Uncertain Prospects, and Measurable Utility

Jacob Marschak

Abstract

After introducing some basic concepts and three postulates on rational choice, it is proposed to show that if the economists' theory of assets is completed by a fourth postulate on rational choice, then utility can be defined as a quantity whose mathematical expectation is maximized by the rational man. In this sense, utility is "measurable" and "manageable." These results are inspired by von Neumann's and Morgenstern's discussion of utility in Theory of Games and Economic Behavior; an attempt is made to sketch some relations between their approach and the present one. It is shown in conclusion that while gambling is compatible with the four postulates, the "love of danger" is not; and a property of the maximum mathematical expectation of utility is conjectured.